Bank loans and Payday loans are different from each other in several factors that you should know if you are thinking of borrowing money but have no idea about the loans.
Bank loan vs Payday loan
Here are factors that differentiate these two types of loans:
- Amount of loan: With bank loans, you can borrow big amounts like $100,000 with very good credits but payday loans are a kind of short-term loans by which you can take only $50 to $1000 (exact amount depend upon state law by which it may vary)
- Repayment time: If you’ll opt to bank loan then the term would be a minimum 1 year but can be up to 30 years in case of big loans like a mortgage loan. Though, for payday loans, it is only a few days, nearly 7 to 31 days.
- Charges: As bank loans are long-term and given to good credit borrowers, rates are low in this case and maximum it goes to 36%. While paydays are the most costly loan with APR of around 300%-500% as it doesn’t require any credit check.
- Qualification: Bank loans are very strict in case of approval as it requires several documents with a lot of paperwork which demands good FICO scores or collateral for the security of the loan. In contrast, to get eligible for payday is very simple as there is no need for documents as the only evidence of earning is the main that will act as the security of your loan.
- Lenders: Bank loans are only provided by banks but payday loans are available from stores and even online also.
- Access of loans: Online Payday loans are convenient as compare to bank loans in terms of accessibility. As you can apply for short-term loans from anywhere and at any time via the internet. But in the case of bank loans, you need to go to the bank to complete all the formalities.
The decision of borrowing money should be relied on following questions that you should ask to yourself:
The amount of money that is needed: If your requirement is between $50-$1000 that means you need a short-duration loan as the bank loan range is high that can be applied for long-duration.
Time duration: You should be clear that your requirement is urgent or not. If you need money for some emergency then payday would be the best for you as bank loans require a great time for the whole application purpose.
Credit Score: Check whether your credit history is good or bad as bank loans never approved for a bad score borrower so if you have good, then only think about bank loans otherwise, you may opt payday as it doesn’t require a hard credit check.
The cost must be clear: You should know that in what type of payment you are comfortable as for payday loans, you have to pay a lump sum amount of your debt plus interest but for bank loans, you can pay in monthly installments.
Collateral: Some of the bank loans demand collateral such as Car loan and House equity loan, but it is not in the case of payday loans. So, think if you are ready to put your asset as the security of your loan or not. A lender can seize your asset in case you get failed.
Cheap: Remember that bank loans are always cheaper than payday loans and mostly preferable. So, if you have time and good credits then choose that which cost you less.
In the end, there are several differences in payday and bank loans which you can go through and choose wisely. It relies on your situation whether to choose this or that. After giving the answers to the above questions to yourself, you’ll be able to decide a good option. As sometimes, circumstances occur when there is an urgent need for money and you can’t wait long. But if you need money for business, to buy a new house or car then you must opt for bank loans due to its lower rate of interest.
Whatever would be your choice, but you must be prepared for the repayment plan so that your monthly expenses do not affect by the debt.